India's Vodafone, Idea Set Merger

India’s telecommunications sector continues to experience fallout from newcomer Reliance Jio’s disruption. In the latest shift, UK mobile service provider Vodafone’s India unit announced plans to merge with local telecom Idea Cellular, creating a company with roughly 397 million subscribers that would control about 35% of the market, when measured by number of customers.

The news comes on the heels of competing mobile carrier Bharti Airtel’s February announcement that it planned to acquire Norway-based Telenor’s India unit, creating a company with a subscriber base of about 307 million.

This wave of consolidation is a direct response to Reliance Jio’s entrance to the market in November 2016. The firm, which relies on the deep pockets of its parent company Reliance Industries, has upended India’s mobile service provider industry by offering users both voice and 4G data at cut-rate prices, while also effectively providing new subscribers with free services for a six-month period. According to the Financial Times, Reliance Jio has spent $25 billion on those efforts so far.

Reliance Jio’s impact on the market has been swift and dramatic. It amassed more than 50 million subscribers in less than three months, and in late February, the company reported it had crossed the 100 million subscriber mark, less than six months after its launch. Those new customers are data-hungry; Reliance Industries chairman Mukesh Ambani said that combined, its subscriber base consumed more than 1 billion GB per day. And Reliance Jio sees no sign of that hunger abating any time soon. In a presentation to investors, the company predicted that its users could be consuming as much as 5 billion to 6 billion GB per month by 2020, according to MediaNama.

In addition, Reliance has forced competitors like Vodafone and Idea to slash their own prices and bump up data plan offerings. That’s led to a drop in revenues across the board, with India Ratings and Research reporting that revenue in the telecom industry has dropped by about 20% since Reliance Jio launched its services.

The beneficiaries of all of this turmoil are India’s consumers. Reliance Jio’s promotional offers of discounted or free services for new customers are set to expire at the end of March, and it’s likely that rivals will move to poach its users by offering new plans with more data at lower costs.

That could do more to push consumers onto 4G plans and open a host of new online behaviors than any government plan for internet access ever could. While eMarketer estimates smartphone penetration in India will remain relatively low in 2017, at just 20.8%, that translates to 267.1 million smartphone users given the immense size of the country’s population.

—Rahul Chadha

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